Tag Archives: Day Trading

How You’ll Know When A Tradable Bottom Is In Place

Posted by Brian Lund in Trading and tagged with , , , ,

The talk for weeks now has been about this market and how oversold it is.  Everybody is looking for a bottom.  Let me rephrase that…everybody is looking for a tradable bottom. One has yet to arrive.

Will it come tomorrow?  Next week?  A month from now?  I don’t know Babs, but I do know this; it’s the wrong question to be asking anyway.  It’s not “when” will the bottom come that you should be asking yourself, but “how will I know it?” when it does come.

The short answer is “you won’t,” at least not with any quantifiable tool or indicator.  This is one of those times in trading when you can take your MACD’s, and oscillators, and overbought/oversold indicators and put them in a box with your bell bottom pants and Members Only jacket, because that is how out of touch and useless they will be.

The reason for this is because price action is not normative during the bottoming process, and thus (temporarily) changes the mechanics of a market, which skews most indicators. Oversold indicators can stay oversold for a long, long time.  Price can extend a long way away from moving averages.  Double bottoms, support levels, and other price regulators become irrelevant.

The only way you can recognize a market bottom when it’s happening in real-time is to feel it.

I know, can you believe that I actually just said that?  Mister “risk/reward ratio” guy.  Sir “quantify your trading” man. Mademoiselle “pretty boy”…wait, strike that last one.

But it’s true.  Take a look at this chart of the $COMPQ from yesterday and the tweets I made regarding finding a bottom.


Neither of those tweets were particularly heroic, nor were they really actionable.  But I did get a number of emails asking me what I was looking at in order to say what I did, when I did.

The best reply I could come up with was, “that was the way the market felt at the time.”  It sounds weak I know, but finding the actual bottom is not a quantifiable process in real-time, which is why it makes it one of the most dangerous times to be trading.

Feel is something that can’t be taught, it has to be learned, and not everybody learns it the same way.  It’s intangible.  It’s ethereal.  It’s The Jimi Hendrix Experience.  It’s taking a jazz drummer who plays behind the beat, combining that with a rock guitarist who plays ahead of the beat, and throwing in a first time bass player who plays right on the beat, and having it come out sounding like magic.

So in that context, I can tell you a few subjective things that I have found over the years that tell me when a bottom is near:

  • The streams and media will go from “we’re near a bottom” to “we will never find a bottom.”
  • Certain perma-bulls will go bearish, and certain perma-bears will crow that they are shorter than they have ever been.
  • Morning drive time DJ’s will spend the first 15 minutes of each show talking about the market.
  • Rumors of forced liquidations, margin calls, and heavy redemptions in big hedge funds will start circulating.
  • Lawmakers will start grandstanding, acting as if anything they can do will stop the market decline.
  • You will see a ton of “oh my God, look at (insert well-loved stock here)” tweets.  Think $AAPL.

There are also two relatively more objective things I look for when determining the actual real-time market bottom.

It’s almost impossible to hit a bottom without a massive price/volume spike down on a 5-min chart.  Some call this a “flush” but I like to call it a “puke” because people are literally “puking” out their positions, causing this market action.  Watch for it.

But the real nail in coffin for me is price action that makes all my charts “jump.”  Meaning that long red bar in the hard right hand bottom that moves so fast it re-scales all your charts simultaneously.  They literally seem to be “jumping” towards the bottom of your monitors. It’s hard to articulate, but it’s kinda in the vein of what Supreme Court Justice Potter Stewart said to describe his threshold test for pornography, “you’ll know it when you see it.”

If you keep these factors in mind and spend enough hours looking at the markets, anybody should be able to develop their own “feel” and have a reasonable chance of being able to tell when a tradable bottom is in place.

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What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in).

 

Why The Real Super-Traders Are Yet To Come

Posted by Brian Lund in Guest Post and tagged with , ,

Today’s guest post is from Jessica Peletier.   Jess is a private trader, blogger, writer and Twitter Fiend.  She trades intraday FX and equities using simple technical analysis.  You can follow her blog at www.roguetraderette.com.

One of the biggest draw-backs about living in a tiny beach shack is the lack of any form of office.

My trading lair literally consists of me in an armchair, with my lap-top on my lap (I know – how novel!) and my TV doubling as my second trading screen.

It’s a little unconventional but it works perfectly well – perfectly well, that is, until my kids get sick.  Like today.

Today, I have 2 kids sitting on the couch looking at me mournfully while I watch my charts set up.

They’re waiting to watch a movie which obviously in kid-world is a God-given right when you’re sick.  Sadly, they’re in for disappointment.

So instead of getting cross and telling them to nick off – I would never do that to sick kids, they might sneeze on me in cold-hearted revenge – I’m explaining what’s happening on my chart.  I’m asking them if it’s going up, or going down, and whether they’d buy it or sell it.

My sick kids are 4 and 8, and I reckon they can pick a trend better than the average adult.

And I’m not the only one nurturing child prodigies – another Aussie trader has a two year old that tells him his chart is ‘broken’, which invariably means the trend has changed.  Personally I think he might have bred the next stock-picking octopus equivalent, but who am I to judge?  ;)


                                     I’m long sick kids, and short TV screens.

Fast Forward 15 Years

As a kid I never saw my parents doing anything to do with money.  They never discussed their investments – although that’s probably because they didn’t have any – and never really discussed how they ran the family budget until we were adults.

Things are different these days.  We tend to be more open about money with our kids, not so much the exact figures necesarily, but what we do with what we have.  This includes what we give, what we save, why we save and even things like insurance and of course our investments.

My kids already know things that I had no idea about when I was in my 20′s, like investment property and share charts, and I can’t help thinking that if they have this kind of exposure now, by the time they’re adults they could easily have their 10,000 hours – ala Malcolm Gladwell’s ‘Outliers’ – done and dusted.

At the very least they’ll have learned a whole new level of financial literacy that not many of us could have hoped for growing up.  My daughter, at eight, already understands that a big red candle is beautiful because you can make money on the downside.

All I knew at eight was that my pocket monet could buy me 10 caramel cobblers on a Saturday morning.

The internet has been revolutionary for ‘normal’ investors like me, people who don’t work professionally in the industry but run a trading business from home.  We have access now to instant prices, where all our parents would have had is yesterdays prices in the newspaper.

We have real-time charting, where our parents would have had to chart any prices by hand – and let’s face it, that takes some commitment.  There’s no way people who hand-charted were doing it for laughs and as such they were few and far between – I would suggest almost non-existant in non-professional circles.

                                    ”Just getting the stock prices, darling!”

But our kids are the ones who’ll be killing it, investment wise – they’ll have access to the things we now take of granted, but they’ll be able to use them without the huge learning-curve we faced once we were adults.

Our kids are going to reach adult-hood entirely proficient, with the steepest part of the learning curve well behind them because they are growing up surrounded by charts.

They are being taught the things we could only learn as adults while they’re still children. And if we can nurture the same passion we have for trading in our kids, I believe in the next 10 years we’ll be seeing a whole new generation of traders like the world has never seen.

You can follow Jessica here on StockTwits and Twitter.

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What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in).

5 Mistakes I Made In Trading Yesterday

Posted by Brian Lund in Trading and tagged with , , ,

Back in 2006 when I first started blogging it was ostensibly to keep an online journal of my trades; but the real reason was to check myself.

I figured that the way to make sure that I didn’t stray from my trading rules, especially since I was trading for a living at that time, was to put everything out in public for all to see.

These days I don’t post much publicly, if at all, about trades I make for a number of reasons.

First off, there are many other traders out there who do analysis better than me.  Secondly, since I have a full-time job, two small kids, and an awesome blog, I just don’t have the time and energy to post trades I make.  But but the biggest reason that I don’t is because it screws with my head.

I’ve learned that when many eyes are on me, even if they are friendly eyes, it changes my mindset when trading.  I don’t know why, and though I could spend many years and thousands of dollars unravelling the psyche behind it, I would rather just accept it, adapt to it, and relax with a beer instead.

What I do like to post about are ideas and concepts relating to trading.  And the fact of the matter is that even though it makes me very happy when get feedback from readers about posts on my blog that help them improve their trading skills, I really write every post for an audience of one……me.

In the same way that taking notes helps to imprint an idea from a lecture better than just listening to it, when I write about the markets, that act in itself helps me to reinforce my trading discipline.

There are a lot of traders with very “clean” blogs, meaning if you read their posts you would get the sense that they have attained trading perfection, never make stupid mistakes, and are ALWAYS profitable.  Okay, whatever.  My blog is about being honest, so allow me to “bleed” publicly a bit here as a reminder to myself what not to do in the future.

Wednesday after the $NQ_F got done with what I thought was an overreaction to the numbers from $CSCO, I took a position, with the intention of holding overnight.  Price grinded up and successfully held support twice, and made a nice run towards the open.

CLICK TO ENLARGE

And that is when the trouble began.  Here is what I did wrong.

1.  I didn’t acknowledge the fact that a double top had occurred.

2.  I didn’t respect the large inverted red hammer that formed the second part of that double top.

3.  I didn’t add in the importance that the two points above occurred at an obvious (and already drawn) resistance level from the previous day’s high.

4.  I didn’t factor in that the first two points happened after an extended run.

5.  I didn’t give weight to the MACD already having crossed over and trending down.

And of course that inverted candle hammer was a top.

CLICK TO ENLARGE

Ignoring one obvious sign is bad enough, but five?  What the hell was I thinking?

Earlier this week I wrote a post about using pain to become a better trader, and one of the suggestions was to go back through your trades with the mindset you had contemporaneously to try and figure out what you did wrong.  Let me follow my own advice here and take a shot at it.

I was greedy.  I had been thinking we were due for a big bounce, and the fact that the futures were green and $NQ_F had shrugged off the $CSCO news made me think it was here. That of course means I was trading off of a script, BUT not marrying it with technical and price action as I have spoken about many times before.

I was also doing a number of things near the open and not putting my full attention on the management of the trade.  I rationalized that by thinking I was giving it “more room to run.” That extra room cost me about 25% of my profits.

On the plus side, it was a winning trade, I sold before things got too out of hand, and I can identify what my mistakes were.

Trading is a process, and a never-ending process at that.  Being honest about your mistakes and understanding why you made them will help to ensure that you always get better at that process.

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What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in).

10 Fascinating “Then And Now” Facts About The NYSE

Posted by Brian Lund in Just for fun and tagged with , , ,


1792 -There are five securities traded in New York City.  Three are government bonds and two are bank stocks.

Now – There are approximately 8,000 listed issues on NYSE Euronext.
___

1823 – Fredriksen Lunde, my great, great-grandfather emigrates to the U.S. from Sweden.  He passes on buying a seat at the NYSE as he feels capitalism is “a fad.”

Now – Every year, on the anniversary of his passing I visit his grave and throw lingonberries at the headstone.
___

1886 – The Exchange experiences its first million-share day on December 15th.

Now – NYSE Volume yesterday was 3,564,732,250.
___

1942 – A membership sells for $17,000, the lowest price in the twentieth century.

Now – Before going public the highest price paid for a NYSE seat was $4 million on December 1st, 2005
___

1952 – The NYSE, in its first shareholder census, finds that 6,490,000 Americans own common stock.

Now – Stock ownership peaked when 67% of Americans owned stock in 2001, and as of 2012 sits around 54%.
___

1974 – Trading hours are extended from 10:00am until 4:00pm.

Now – NYSE Arca pre-market 4:00 am to 9:30am EST.  Regular NYSE trading until 4:00pm. Arca Extended Hours 4:00pm to 8:00pm EST.
___

1993 – Daimler-Benz AG becomes the first German listed company.

Now – 421 non-U.S. companies valued at $ 11.4 trillion trade on the NYSE.
___

1996 – NYSE listed company Oakley ($OO) misses earnings and massively gaps down, cutting my trading account in half.  The stock never recovers.

Now – I only wear Ray Bans.
___

2001 – Decimal pricing of all NYSE stocks is fully implemented, ending the practice of trading in fractions used for two centuries.

Now – Pricing regularly goes six places past the decimal (i.e. $44.419900).
___

Now – I decline to buy $FB at its IPO and ridicule the stock as overvalued and “a fad.”

2052 – I am sent to the “home” after punching my adult grandson in the mouth when he asks “hey grandpa, why didn’t you buy $FB in the years before they bought $MSFT, $IBM, $AAPL, $BIDU, and $GE, becoming the biggest company in the universe?”


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What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in).

5 Rules For Trading A Reversal Hammer

Posted by Brian Lund in Trading and tagged with , , , ,

There is a school of thought that a trader should focus on one or two “bread and butter” type set-ups and get as good as they can at them.  It’s something that I used to read about on Trader X and the Wall Street Warrior’s blogs, and I have come to totally agree with.

I have found one of the more reliable intra-day setups is to buy off of a reversal hammer, however there are a few rules I follow in order to raise the percentages is my favor.

1.  There has to be an “aggressive” downtrend preceding the hammer; in fact the more violent and bloody the better.

2.  You want to see a large volume and price spike on the candle before the hammer.  This is key because it usually means that the last group of longs are “throwing in the towel” en masse.

3.  The hammer has to reverse in/at a previous support level.

4.  The hammer has to be green, and the closer to a hammer opposed to a doji the better.

5.  The overall market direction should be up, flat, or slightly down.  Trying to catch a reversal hammer when the broad market is down big on the day is a losing game.

This chart on $AAPL illustrates an almost a perfect reversal hammer set up.  The only negative is that the actual body of the hammer is not as big as I would like it to be.

Some traders think that you should wait for an inside consolidation bar after the hammer before you buy the break, but I don’t agree.  The dynamics of a hammer reversal, with the spike down on volume and price, as well as the long tail of the hammer itself, should mean that all sellers are exhausted, at least temporarily, and price should move back up fairly strongly.

A consolidation bar tells me that buyers are not easily overpowering sellers, and that the hammer may just be a temporary pause before a new round of sellers come in.

Once you have bought the break of the hammer’s high, if you are a conservative trader, you should take a partial when price touches the 9 EMA.  If you are an aggressive trader, you could take a position based upon 50-75% of the hammer’s length instead of the total length, and also take a partial at the 9 EMA.

The most conservative way to play a hammer reversal is to not buy the break of the hammer, wait for price to bounce, settle back down to the support area, and form a second hammer.  You could then buy the break of that hammer.

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What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in).

How To Place More Effective Stops

Posted by Brian Lund in Trading and tagged with , , , ,

Having been on both sides of the aisle; the trader side and the brokerage side, I think I have a different perspective on the this issue of stop placement than most.  During the course of the day I see a lot of what goes on in the soft underbelly of trade executions and I also talk to a lot of traders who initiate those executions.

One of the complaints that I often hear from retail traders is, “I can’t believe it, they hit my stop and then ran the stock right back up.”  This is definitely one of the most frustrating things that can happen to a trader, and when I hear it my empathetic response is…

“No duh?   Of course they hit your stop, they knew right where it was.”

But they are not supposed to be able to see your stops right?  And if they can’t see them, then how can they go after them?

More on that in a minute.

First let me take a moment to clarify who “they” are.  To tell the truth, I don’t know who “they” are, but I watch “their” actions every day.  They could be market makers, specialists, bots, HFT’s, Algo auto-traders, a combination of all of them, or just the market mojo driven as a whole by the spirit of the late Paul Lynde.

It doesn’t really matter what the mechanics of it are, it’s just the results of those mechanics that matter.

The bottom line is that many entities in the market benefit by volume, and they do anything they can to create that volume, like triggering your stops with only a quote instead of an actual trade which I have written about before.

This type of market action has changed the rules of trading, and let’s face it, the rules of trading have always been pretty dicey to start with.

If you had a 50/50 chance of a certain trading rule holding up in past markets, it’s now more like 25/75.  Of course I am just pulling those numbers out of my ass, but you get the point; the market has changed, and you have to change the way you trade it, especially when it comes to placing stops.

Let’s start with an illustration that I painstakingly created in a very high-end program called Microsoft Paint.

In days of yore, the way this trade would have been played out is that you would have waited until a double bottom was put in at point B, entered on the bounce, and put a stop in below the red line.  If your trade did indeed fail and stop you out, it would normally continue on down to new lows.  But that’s not how it works anymore.

More often than not, before the trend completely reverses and moves back up, you get one last shiv, as price quickly drops below the double bottom to point C, and then just as quickly reverses back up above the support line and continues to run higher.  This is when I hear the retail traders start to holler about their stops being hit, run, liquidated, or “spanked” depending on what they are into.

So can they see your stops and go after them?  No they can’t, not in the sense you think they can.  In past days if a large human participant wanted to try to run the stops, well they didn’t have to be a genius to know where everybody and their brother put their stops.  Just by looking at a chart and understanding human nature they could figure that out.

Today in the world of robo-trading, “they” know the same thing, it’s just that they are programmed to know instead of having a live human being drive the strategy.

So “No!” Mr. and Mrs. retail trader, they are not running your 100, 500, or even 1000 shares of XYZ, they are running the 10′s of thousands of shares of XYZ that they know are sitting just below the double bottom of the day.  And if you are buying a breakout, it’s basically the same concept.

Price runs up, pulls back, bases, proceeds to break to new highs, but then pulls back to point C and the wehewqlkg etoetdg=reegr.g.gge;wp  %$$%()SSQds…….

Sorry my cortex just snapped from repeating myself for the millionth time.  I don’t need to belabor this point, you get what I am talking about here.

So the big question; how can I put in more effective stops?  There are basically three ways to do it, each of which I will make up a random and important sounding name for.

The Johnny Sokko And Giant Robot Method:

This involves adjusting your position size based on a “stop plus” methodology.  Normally by knowing the spread between your entry and your stop below support, you divide that into your max $ loss per trade and that is your position size.

But based on the new market dynamic you need to add a “plus” factor to your stop, in essence making your position size smaller, but giving you a better chance to not get shaken out on a run of the obvious stop level.

What you use for a plus factor depends on what type of asset class you are trading, the specific traits of the instrument in that class, and the overall market tenor.  A suggestion would be to start experimenting with a fixed percentage of the ATR and adjust depending on the results you see.

A Rainbow In Curved Air Technique:

Here you would actually anticipate the run of the stop area at point C on the above charts and put a limit buy order there.  Basically you are not buying support anymore, you are buying “support minus.”  What your minus amount is once again would need to be experimented with, but as a variation you could break your position into two or three limit buys in a range below support.

The advantage to this method is that if you do get filled below support and price does not rally back over that level, you can be reasonably sure that support has truly failed and price will continue lower making your stop out a no brainer.

The Larry Tate Experience:

The last method is a hybrid of the previous two for those that worry they will “miss a move” if they try to buy below support.  I mean what if price never gets there and they don’t get filled right?

Instead you take a half position on the bounce off of (or past) point B.  If price continues to run so be it, but if it makes a stab past support to point C, you have some dry powder to grab the second half of the position.

This ultimately gives you a better average price, and once again allows you more room for price to run back up before stopping you out, though not as much room as the “Rainbow” method.

Conclusion:

It is a common saying that trading is “chess not checkers,” but these days it is more like that 3D chess game that they had on Star Trek, with a helping of Dungeons and Dragons, and some poker thrown in.

You can no longer think in a “logical” way and have to be able to modify the traditional trading rules when it comes to stop placement and trade management.  And even more critical is the ability to think on different levels, many moves ahead, and be willing to evolve your methodology for the ever-changing market.

And even MORE critical than that is to subscribe to bclund.com for free  Via E-mail or Via RSS and follow me on StockTwits and Twitter?

What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in).

Deconstructing A Trade: Managing A Target Trade

Posted by Brian Lund in Deconstructing A Trade and tagged with , ,

One of the toughest things about managing a trade to a target level is deciding when and if you need to close your position out early.  In this video we go through a trade and see what your options are for managing a target trade.

(Enlarge when video starts to watch in HD)

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What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in).

How To Day Trade With Less Than $25,000

Posted by Brian Lund in Trading and tagged with , ,

This post has me in a bit of a conundrum.  I am writing about something that I am not totally on board with but recognize as a necessary evil; day trading with less than $25,000 in your account.

Day trading is definitely one of the hardest things that somebody can do, and the optimal way to do it is to have a well-capitalized account and some practical experience in riding the intraday lightning.  The obvious financial issue is that not everybody can afford to drop 25K+ into a trading account to get day trading privileges, and the experience issue ends up being a “chicken or the egg” scenario.

I know that some of you are shouting at your screens right now, and not just because a trade is going against you.  You’re yelling “Hey Poindexter, how about paper trading?”  Well, I don’t believe in paper trading, a point I made again in my recent post about finding a trading mentor.  My alternative is to trade small position size until your skill/equity level gets to the point where you can start to scale up.

That post prompted a lot of emails posing the question, “how can I get practice/experience day trading since I don’t have $25,000 to put in my account?”  This then is my answer to that question.

The Rolling Five Day Method:

This is the best and I believe safest method for day trading a sub-25K account.  You are allowed to do three-day trades during a rolling five-day period.  You won’t get 4x buying power, but you can use regular 2x margin for your trades.

I like and recommend this method most because it forces you to be more discriminating in your trading choices.  If you see a number of mediocre setups one day, you are more likely to pass on them and wait for more optimal ones on another day since your dry powder is limited.

The Split Brokerage Account:

So let’s say that you have only 10K to trade with, and you are dead set on day trading (…you know there are things called “swing trading” and “position trading” too).  You can split your funds in half and open two accounts with two different brokers.

By doing this you will effectively be able to do six day trades on a rolling five-day basis (once again only with 2x margin buying power), which should be more than enough for a beginning trader.

In the past this would be an awkward way to execute trades, but the ease with which you can now open accounts, transfer money, and trade online makes it definitely a viable option.

The Split Brokerage Account Wash Method:

Same set up as above but if you insist on having an almost unlimited ability to day trade a sub-25K account, this method will appeal to you.

For example, you take a long trade of 50 shares in XYZ in broker #1.  When you are ready to “close the position” you just sell short 50 shares of XYZ in broker #2, effectively making you flat.  You can then close each side out the next day, without using up any of your three day trades.

Obviously you will incur some extra costs as you will have four commissionable events instead of two, as well as a bit of slippage depending on the width of the spread on the stock you are trading.  Because of this, I suggest you only use this method if you are trading with a per share commission set up.

If you are trading small (25-100 shares), you will most likely only incur a minimum ticket charge per side (usually $1.00) and the slippage costs, if any, will be negligible.  It’s a small price to pay for almost unlimited day trading ability with a sub-25K account.

One last note on the “Split Brokerage” options.  I highly doubt it, but it is possible that in the mounds of SEC regulations that exist, there might be some rules against trading two separate brokerage accounts in this related way, but if there is A) nobody is monitoring it, and B) really, what would the “penalty” be?  I think I can safely say that for all intents and purposes, this is completely allowable.

Prop Trading:

There are a number of prop trading firms out there that you can trade with, either on their floor or “virtually.”  These firms allow very small account minimums (often as low as $5,000) and you can trade with the firm’s capital which allows you full day trading buying power (sometimes more) and no day trading limit restrictions.  You also can usually trade with a micro commission structure.

Of course as you might guess, there is no such thing as a free lunch.  When trading with a prop firm you don’t get to keep 100% of your profits, you get a “payout” percentage that is based on a number of factors.  You also may have to do a minimum number of trades or pay a fee to use their platform.

I have never used a prop shop myself but know traders who have.  I have heard good and bad stories, so if you choose to go this route, make sure you fully investigate them and get some references before you commit.

Futures Trading:

There are no day trading restrictions on futures and since you are only required to put up a small percentage of your overall contract size, leverage is more than you will need.

That being said, if you are in any way thinking about trading gold ($GC_F), oil ($CL_F), wheat ($ZW_F), or basically anything other the E-mini’s, just send me 95% percent of your trading funds and ask your friend to slam your head in between your car door.  That you way you will end up with more money and still feel better that you would otherwise.

The S&P 500 E-mini ($ES_F) and the NASDAQ 100 E-mini ($NQ_F) are the ONLY futures contracts that a beginning trader should try to day trade.

Even so, it is still tough for a lightly capitalized trader to trade $EF_F as each point is equal to $50.00 ($12.50 per tick, four ticks to a point).  If you have a 5K account, only one point would equal 1% of risk capital which does not give you much room to be wrong.  You would probably want to have a minimum account size of 10K+ in order to effectively trade the $ES_F.

The $NQ_F is only $20.00 per point ($5.00 per tick, four ticks per point), but moves faster, farther, and more erratically than the $ES_F.  I have personally spent the last two years trading it, having 23 years previous equities trading experience, and I still find it challenging at times.

No matter how hard you want to day trade with a sub-25K account, be forewarned that futures are a very, very tough and specialized asset class, and only a small number of new traders will ever be consistently profitable with them.

Forex Trading:

Like futures, forex has no day trading restrictions and ample leverage for small account traders.  There has also been a proliferation of resources for learning about forex trading over the last few years.

One of the benefits of trading forex over futures is that you can have a minimum size position that better relates risk-wise with a small account.  As a beginning day trader you should stick will the most liquid crosses like the EUR/USD ($EURUSD).  If you trade the EUR/TRY (Euro against the Turkish Lira), once again, put head in car door……

Currencies have their own set of challenges.  They do not trade like equities, however many traders feel that they do more closely respect the “rules” of technical analysis. Fortunately, StockTwits has a ton of forex blogs like FaithMightFX, Raghee Horner, The FX Cafe, StockTwitsFX and many great currency traders like my punk rock friend @NoDoji.

Conclusion:

So there you have it, how to get around the system, beat the “man,” and be a trading vandal.  Just make sure you always keep risk foremost in your mind so that you can graduate from this level of trading and make it to a fully funded day trading account.

Hey, one last thing….nine out of ten surveyed traders find bclund.com friggin’ hilarious, informative, and high in fiber, and the tenth guy is a loser.  So why not subscribe for free  Via E-mail or Via RSS and follow me on StockTwits and Twitter?

What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in).

5 Tips For Trading The Overnight Market Session.

Posted by Brian Lund in Trading and tagged with , ,

Earlier this month I had an article come out in SFO Magazine entitled “The Night Shift -Trading After Hours” and one of the traders I interviewed for it was Dan Tylenda-Emmons, known as @codertrader on StockTwits.

Dan was very generous in sharing his knowledge about trading the E-mini ($ES_F) in the overnight session and his info really helped the article.  However there were 5 tips that Dan had sent me that could not be included due to space constraints.  I am going to share them here along with a short video from the SFO article that illustrates Dan’s preferred time frames to trade overnight.

Here they are:

1) Use half your normal position size.  The markets can stay irrational longer than you can stay solvent — this is especially true when cash markets aren’t open and there aren’t market internal indicators to use as a guide.

2) Use currency futures as risk indicators. When trading $ES_F always keep an eye on what $6E_F and especially $DX_F is doing. Most of the time, the euro and the dollar index can be used as a warning sign of things to come, whether you are long or short.

3) Listen to a news source. News can happen any time of day, just like futures markets are open around the clock. RanSquawk is an international news source that is offered independently, or if you have a ThinkOrSwim account, you can listen to it under Chat/Global News. It is extremely important to have at least one source for news, and possibly use Bloomberg streaming news (free on their website) as a backup.

4) Know your economic calendar.  One of the worst things that can happen to you is have a profitable trade rip against you due to a seemingly random GDP report out of France or an unemployment report out of Germany.  The point is, you must be aware of global economic news if you want to trade global markets.

5) Only price pays.  Don’t try to think you are smarter than the market because price is moving against you “on light volume”.  That thinking is toxic and pervasive, especially in this market.  The reason volume is light is that there are simply fewer participants overnight and it doesn’t take that much volume to rip your face off.  Your broker doesn’t care about volume when they send you a margin call. Volume is fine, especially if you stick to London cash market times. Stick to your stops.

* Bonus: some may disagree with me, but try to trade 2-5AM CST. Outside of that time range, liquidity is hard to come by and you can get chopped to pieces.

The Night Shift – Trading After Hours via SFO Magazine.

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What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in).

Deconstructing A Trade: Staying In The Game.

Posted by Brian Lund in Deconstructing A Trade and tagged with , , , ,

A few weeks back I was fortunate enough to hear Howard Lindzon give a speech about his thoughts on successfully trading the markets.  One of his main points was “staying in the game.”

In the context of his speech it meant making sure you were risk averse enough so that you could whether bad trades, in order to stick around for winning trades that would eventually come.  But as I thought about it more, I realized that “staying in the game” can also apply to trading in a micro way as the following video illustrates.

(Enlarge when video starts to watch in HD)

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(Note: If you are new to my blog, I post about all sorts of things.  Sometimes it involves something extremely personal, like creating a 30K baby or my Monster Trades.  Other times it deals with hot ex-porn stars who trade stocks.  And sometimes it’s about how to avoid “suicide”.  But a good place to start is The Best of bclund.  If you like what you read, please tell a friend.  If you don’t, please tell two friends.)